Posted by: kgroninger | August 18, 2010

Appraisal Problems

Friends and Colleagues:

We are having a problem with a low appraisal which at its roots is probably an industry-wide issue that you are certain to bump into. Without immediately going into a bunch of detail, a customer that we are hoping to build for has received a low appraisal on their proposed project, which prevents them from meeting loan-to-value ratios that their lender demands.

I’ll go into more detail but if anyone else has experienced this problem, would you please share your thoughts and experiences.

Our customer has a contract on a 50 year-old home in a good location here in Winter Park. The home has been updated with new windows, cabinets, appliances, roof and fresh paint. It really is in excellent condition. We want to add 1400 square feet with a Master suite, billiards room and home theater.

I’m sure the appraiser feels like he’s doing his job correctly, but he’ll be paid whether the deal consummates or not. With only distressed sales to use as comps, the square foot value used to assess the value is quite low. The additional space supposedly has a value of $64 per square foot – ridiculous, huh?

What do we do now?

Posted by: kgroninger | November 26, 2009

Cost-per-Square-Foot Rules the Housing Market

I’ve just finished reading “Is the McMansion Dead?” by Jenny Sullivan in the current issue of Builder. There has been much written and broadcast in the media recently about the plight of the McMansion and I can’t help but sense some animosity in the tone of many of the stories. I wonder if there is a feeling of spite among those living in more modest homes, to see these displays of affluence suffering from the degraded economy and growing trend of a more sensible or green approach to our spending habits. While I generally agree with much that has been said, I can’t help but think that the consumers’ desires for “newer”, “bigger”, “better”, have managed to put bread on our table for many years now.

All that said, my response has more to do with what wasn’t mentioned in Jenny’s story. Here in Central Florida where we are suffering from one of the worst new home markets in the nation, Cost-per-Square-Foot continues to be the overwhelming guideline used by consumers and most real estate professionals, to compare the value of homes for sale. This Cost-per-Square-Foot mentality fueled the boom market with big, boxy, generic floorplans and a cafeteria buffet line approach to design and amenities. With my own unsold masterpiece, twice I’ve lost sales to other homes that were actually more expensive than mine but offered a lower cost-per-square-foot. One of the buyers told me they preferred my home but felt the larger one was a better value. They actually spent more and purchased a home that is bigger than they need because of this brainwashing. In addition, my home is green and will cost much less to run and maintain, which wasn’t even a factor in their decision process. If this rationale carried over to our automotive purchases we would all be driving gas-guzzling SUV’s and be willing to spend more for them than a practical, efficient vehicle. Oh wait a minute…

This past spring, our local HBA Parade of Homes featured the seven most-expensive new homes in the southwest quadrant of Metro-Orlando. They were built by seven different builders but were all basically the same floorplan. As builders and designers we must accept our share of blame for part of the problem. If we persist in building big, glitzy drywall barns with no real discernable differences, then the public will continue to treat housing like a commodity. The solution may be better design. In addition to creative style, our homes should be designed and built to provide low environmental impact, accessibility, adaptability, sustainability and ease of maintenance. Smart design should create a timeless appeal and lasting value, and there isn’t any reason they can’t be exciting and glamorous as well. Think about it.

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